thatSocialSecuritytaxesequal10.4%ofincomeupto$137,625.

ProposalBincreases
theSocialSecuritytaxrateto13%,butleavesthecapunchangedat$110,100.Forpeople
withincomethatalwaysexceedsthecap,theamountofSocialSecuritytaxisthesame
underProposalA($137,625*0.104=$14,313)asunderProposalB($110,100*0.13=
$14,313).TherearenoplannedchangesinfutureSocialSecuritybenefitsanticipatedby
currentworkers.
a.Sallyisselfemployedandearns$150,000peryear.WhataretheeffectsofProposalA
andProposalBonSallyslaborsupply?Underwhichproposalwouldshesupplya
greateramountoflabor?Explainyouranswersusingtheconceptsofincomeeffectand
substitutioneffect.
b.Fredisselfemployedandearns$50,000peryear.WhataretheeffectsofProposalA
andProposalBonFredslaborsupply?Underwhichproposalwouldhesupplyagreater
amountoflabor?Explainyouranswersusingtheconceptsofincomeeffectand
substitutioneffect.